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The costs of nuisance and the nuisance of costs – by Phillip Patterson

A divided Supreme Court in Coventry and others v Lawrence and another [2015] UKSC 50 has finally brought to a conclusion a particularly sorry piece of litigation with a judgment which serves to highlight the turbulent regime of civil litigation costs in the 21st Century.

Were it not for the human element at the heart of this case, there would be considerable humour in what Lords Neuberger and Dyson described as the “unfortunate irony” of a leading case examining the costs regime in England and Wales requiring three hearings before the Supreme Court. But this case is not the product of the mind of a modern satirist. It is a case which puts the costs regime left by the decline of civil legal aid back in the spotlight.

Ms Lawrence and Mr Shields owned a residential bungalow in Mildenhall, Suffolk. A mere 800m away was a stadium which hosted motorsport events. Troubled by the noise emanating from these events and the impact it had on the enjoyment of their bungalow, the couple sought advice on bringing a claim for the tort of nuisance. The couple were ineligible for legal aid. However, their financial position was such that the costs of litigation were a significant factor for them in coming to a decision on how to proceed. The couple entered into a Conditional Fee Agreement (“CFA”) with their legal representatives.

After an 11 day trial, HHJ Seymour found in the couple’s favour. The stadium’s owners appeal to the Court of Appeal and won. The couple took their case to the Supreme Court, who overturned the decision of the Court of Appeal and reinstated judgment in their favour ([2014] AC 822).

So far this case seems unremarkable. This impression changes, however, when further details are added. The bungalow concerned was valued at less than £400,000. The evidence heard at trial suggested that the maximum diminution to the value of the bungalow resulting from the nuisance was £74,000. The amount awarded to the couple by way of damages was £20,750. In addition to this money judgment, however, the Defendants were found to be liable for over £640,000 towards the couple’s costs. The Defendants argued that an order against them to pay such a sum by way of costs amounted to a breach of Article 6, ECHR and A1P1.

The vast scale of the costs bill in this case arose from three factors:
• Base costs
• Success fee
• ATE insurance

The base costs of the Claimants were high largely because liability in this case was only determined following hearings in the High Court, the Court of Appeal and then two hearings in the Supreme Court prior to the hearing to which the recent judgment relates.

The second and third driving forces behind the vast costs bill both related to the fact that the couple were represented pursuant to a CFA. The rules applicable to this claim were such that a successful party whose representation was provided under a CFA was entitled to recover both the success fee and the ATE premium from the other party in addition to their base costs.

In one sense, the questions which the Supreme Court was considering in the Coventry case were academic, or at least historic, in their nature. The Jackson Report on the costs of civil litigation was highly critical of those rules which imposed upon the losing party liability to pay the successful party’s success fee and ATE premium. As a result of that Report, since 1 April 2013, it has not, in most cases, been possible to recover these from the losing party.

However, the potential implications of the Supreme Court’s ruling went far beyond the (now insolvent) Defendants’ liability to pay this extraordinary costs bill incurred by Ms Lawrence and Mr Shields. To fully appreciate the implications of this judgment, it is necessary to look back to the judgment of the Supreme Court in Coventry (No. 2) [2014] UKSC 46 (the second of the three judgments of the Supreme Court in this case). It was before that court that the argument was first run that the liability to pay the Claimants’ costs of the litigation as ordered infringed the Defendants’ rights under Article 6 and A1P1. In was, in that hearing, one of four issues for the court to consider, and the Supreme Court in Coventry (No. 2) declined to rule on the question. Lord Neuberger (with whom Lords Clarke and Sumption agreed) observed at [43]:

“a determination by a United Kingdom court that the provisions of the 1999 Act infringed article 6 could have very serious consequences for the Government. Although the Strasbourg court would not be bound by the determination, it would, I suspect, be very likely to agree or accept that conclusion, so that those litigants who had been “victims” of those provisions could well have a claim for compensation against the government for infringement of their article 6 rights.”

If these observations were correct, the Government stood potentially liable for the compensation of a very large number of parties from litigation which took place under the old costs regime, a regime which prevailed for more than a decade. The question of the liability to pay the Claimants’ costs was, therefore, listed for a further hearing before the Supreme Court after the Secretary of State and the Attorney General had been given an opportunity to make submissions.

This recent judgment, finding as it did that the regime did not breach Article 6 and A1P1, will provide some consolation to the Government. Nevertheless, the Supreme Court was divided and its judgment highlights in clear terms the difficulties which have arisen following the retreat of civil legal aid.

In an instructive account of the history of the CFA regime, Lords Neuberger and Dyson, giving the judgment of the majority, quoted from Lord Bingham in Callery v Gray (Nos. 1 and 2) [2002] 1 WLR 2000, the statutory aims of the 1999 Act:

“One aim was to contain the rising cost of legal aid to public funds and enable existing expenditure to be refocused on causes with the greatest need to be funded at public expense, whether because of their intrinsic importance or because of the difficulty of funding them otherwise than out of public funds or for both those reasons. A second aim was to improve access to the courts for members of the public with meritorious claims. It was appreciated that the risk of incurring substantial liabilities in costs is a powerful disincentive to all but the very rich from becoming involved in litigation, and it was therefore hoped that the new arrangements would enable claimants to protect themselves against liability for paying costs either to those acting for them or (if they chose) to those on the other side. A third aim was to discourage weak claims and enable successful defendants to recover their costs in actions brought against them by indigent claimants.”

Both the majority and the minority recognised that the regime introduced by the 1999 act resulted in substantial advantages for some litigants and substantial disadvantages for other litigants. For Lords Neuberger and Dyson, the apportionment of risk and benefit as between various classes of litigant was a matter for Government:

“It is common ground that the question whether a fair balance has been struck between the interests of those litigants who have CFAs and ATE insurance and those who do not is one for the court to determine. But, even in a field such as access to justice and legal costs, the court, while being vigilant to protect fundamental rights, must give considerable weight to informed legislative choices, at least where state authorities are seeking to reconcile the competing interests of different groups in society. In such cases, they are bound to have to draw a line somewhere in order to mark where a particular interest prevails and another one yields. Making a reasonable assessment of where to draw the line, especially if that assessment involves balancing conflicting interests falls within the State’s wide discretionary area of judgment.”

The majority endorsed the effects of the old CFA regime, stating:

“The scheme as a whole was a rational and coherent scheme for providing access to justice to those to whom it would probably otherwise have been denied.”

The majority brought their judgment to a conclusion with the following, insightful comments on the difficulties faced following the reduction in the availability of civil legal aid:

“The Government was entitled to a considerable area of discretionary judgment in choosing the scheme that it considered would strike the right balance between the interests of appellants and respondents whilst at the same time securing access to justice to those who would previously have qualified for legal aid. It had to find a solution to the problem created by the withdrawal of legal aid. The Government has now produced three different schemes. Each was produced after wide consultation. Each has generated a considerable criticism. As already indicated, once civil legal aid was constrained to the extent that it was in 1999, it became impossible to come up with a solution which would meet with universal approval.”

“The critical point in this case to my mind is that in the system under review some classes of defendant were treated differently from others.”

He continued:

“As I see it, the system was unfairly discriminatory against some classes of respondent by comparison with others. I can understand that it might be just to introduce some such system where the respondents are part of a class of respondents who are frequently litigators such that a system which provides the rough with the smooth may be justifiable.”

However, because the system introduced by the 1999 act was not so focused and, in fact, chose a particular class of respondents on who to impose liabilities far beyond the bounds of what was reasonable or proportionate, the minority found the system to be in breach of Article 6 and A1P1:

“it seems to me to be discriminatory and disproportionate to burden uninsured respondents with costs which vastly exceed the fair and reasonable costs incurred by the claimant in order to encourage solicitors to act for other appellants against other respondents against whom the claims may fail.”

It is perhaps inevitable that the Supreme Court followed the reasoning of the majority. Had the reasoning of the minority prevailed, unsuccessful litigants who had paid out under costs orders for success fees and ATE insurance, would surely have sought to bring claims against the Government for the recovery of those sums. The potential bill for the Government in that case would have been devastating.

Nevertheless, this judgment highlights, both in the views of the majority and the minority, the difficult balancing act which the Government has had to strike since the retreat of civil legal aid. It may well be that the regime which came into force in April 2013 is not a significant improvement on that which was under scrutiny in Coventry. A matter which was not in dispute between the judges in this case was that the underlying claim would not have been viable under the new regime. There was thus an acceptance of sorts that the changes brought about following the Jackson Report had in fact restricted access to justice by restricting the scope for parties to recover their success fees and ATE premiums from the losing party.

The 2013 changes may not, therefore, constitute the last word on this subject. The Government must monitor what happens in courtrooms across England and Wales. It must take care to strike the correct balance between widening access to justice for non-rich litigants and entitling defendants to contest claims which it is appropriate to defend without risking vast and crippling costs orders being made against them. Coventry v Lawrence shows just how hard it will be for the Government to strike that balance.